Hello, and welcome, ladies and gentlemen, to the Second Quarter of Fiscal Year 2024 Earnings Conference Call for Apyx Medical Corporation. At this time all participants have been placed in a listen-only more. At the end of the company’s prepared remarks we will conduct a question-and-answer session.

Please note that this conference call is being recorded and that the recording will be available on the company's website for replay shortly.

Before we begin, I would like to remind everyone that our remarks and responses to your questions today may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including without limitation, those identified in the Risk Factors section of our most recent annual report on Form 10-K, our most recent 10-Q filing and the company's other filings with the Securities and Exchange Commission.

Such factors may be updated from time to time in our filings with the SEC, which are available on our website. We undertake no obligation to publicly update or revise our forward-looking statements as a result of new information, future events or otherwise.

This call will also include references to certain financial measures that are not calculated in accordance with the generally accepted accounting principles, or GAAP. We generally refer to these as non-GAAP financial measures.

Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in earnings press release on the Investor Relations portion of our website. I would now like to turn the floor over to Mr. Charlie Goodwin, Apyx Medical's President and Chief Executive Officer.

Please go ahead, sir..

Thanks, operator, and welcome, everyone, to our earnings call for the second quarter 2024. I'm joined on today's call by Matt Hill, our Chief Financial Officer. Let me provide you with a brief outline of today's call. I'll discuss our revenue performance in the second quarter and some of the highlights from our recent operational progress.

Matt will review our Q2 financial results and full year guidance, which we updated in our earnings release today. I'll then share a few closing thoughts on our outlook and priorities for the balance of the year before we begin Q&A. Starting off with a review of our quarterly revenue results.

In the second quarter, total revenue decreased 10% year-over-year to $12.1 million. By segment, sales of our Advanced Energy products decreased 17% year-over-year to $9.8 million, offset in part by sales of our OEM products, which increased 29% year-over-year to $2.4 million.

We were pleased to see OEM sales that exceeded our expectations for the second quarter, driven primarily by stronger-than-expected sales to several customers. Looking at the performance of our Advanced Energy segment in further detail.

As we had anticipated and communicated in the expectations shared on our last earnings call, our Advanced Energy performance in the second quarter continued to reflect the challenging environment in the cosmetic surgery market that we and other companies have experienced since the middle of last year.

Most notably, the market for capital equipment purchasing remains soft as prospective customers continue to delay purchase decisions given concerns about the broader macroeconomic environment. As expected, this continued to impact global generator sales throughout the second quarter, which drove the year-over-year decrease in Advanced Energy revenue.

In spite of this challenging environment, we were pleased to drive strong growth in sales of our handpieces fueled by demand from our global base of customers as well as new users. Handpiece sales to customers in both the U.S.

and international markets increased by more than 20% year-over-year, helping to mitigate the impact of lower generator sales as anticipated. Our handpiece sales performance was largely consistent with our expectations for the quarter, and we expect continued growth in the second half of 2024 as well as I'll discuss later.

In addition to driving sales performance, we remain equally focused on controlling costs to optimize our cash efficiency in this environment. Turning to a discussion of our recent operational progress.

Our team has been working diligently to offset the challenging market environment by engaging with prospective surgeon customers to navigate the potential barriers to generate our adoption.

Leveraging the extensive and growing portfolio of clinical evidence for Renuvion, which supports our technology is the best on the market and executing our marketing strategy to raise awareness of our best-in-class technology and its benefits at both the surgeon and patient levels.

I'll now discuss our progress with respect to each of these three items in turn, beginning with our efforts to facilitate generator adoption. In this market, we've seen prospective surgeon customers express concerns about the financing environment and high interest rates.

To address these concerns, our team is focused on educating surgeons on the purchasing options available through our third-party partners and working with them to identify creative solutions to access our technology.

As a reminder, in addition to traditional purchasing, we have third-party partners in place that are able to assist prospective customers in financing generator purchases through both subscription and leasing models.

Beyond addressing these concerns, we continue to raise awareness about the compelling benefits of our best-in-class technology, leveraging our extensive portfolio of clinical evidence.

By ionizing helium to create cold atmospheric plasma, Renuvion enables surgeons to rapidly heat soft tissue to the ideal temperature for contraction and cool it back down in fractions of a second. Because of this, we believe it is inherently safer, faster, and more effective than alternative methods.

Its strong safety and efficacy profile of our technology is supported by an extensive portfolio of more than 90 published clinical papers abstracts and posters as well as three multisite IDE clinical studies. Most recently, a retrospective continuous series study of 450 patients compared Renuvion to a commonly used Bipolar RF technology.

Its results were presented by its lead author, Dr. Michael Kluska at the AACS Scientific Meeting earlier this year and was published yesterday in the peer-reviewed journal Plastic and Reconstructive Surgery Global Open. Dr.

Kluska and his fellow researchers found that patients treated with Renuvion exhibited statistically significantly fewer adverse events than those treated with Bipolar RF, including significantly fewer burns, hematoma, hypertrophic scar and seroma.

They concluded that Renuvion may offer a safer alternative to Bipolar RF following liposuction or body contouring procedures. We believe these and other clinical studies demonstrate that we have the best-in-class technology on the market to coagulate and contract soft tissue, which addresses loose skin directly at the source.

Our team drove awareness of our best-in-class technology during the second quarter by educating and training surgeons via multiple avenues. Throughout the quarter, we hosted five physician mentor programs in key areas across the U.S.

and participated in courses at the Body Contouring Academy, all of which enable prospective surgeon customers to experience the use of Renuvion in live surgeries and learn from their peers in the industry. We participated in six industry conferences and trade shows as well, where Renuvion was featured in a total of 37 podium presentations.

And we hosted a Renuvion users meeting in Las Vegas, where 150 participants from 13 countries discuss techniques and approaches for applying our technology based on their clinical experiences and latest research with 27 presentations over two days.

And lastly, in addition to these surgeon education activities, we continue to enhance our direct-to-consumer initiatives in order to raise awareness of Renuvion at the patient level as well. After bringing on a new marketing leadership late last year, we've partnered with a leading communications firm to inform and support our DTC strategy.

We've been pleased with our increased presence on social media in recent months and responses we've seen in the form of strong sequential year-over-year growth in impressions, new followers and profile views. As part of the broader evolution of our DTC initiatives on June 26, we announced the Renewing Lives campaign, a nationwide giveback program.

For every Renuvion procedure performed in the U.S., Apyx Medical will donate to a fund to fund Renuvion procedures for people who can most benefit from our technology, but are not able to afford the treatment.

In pursuing this giveback program, we aim to educate people about the positive impact of our body contouring technology can have on a patient's mental health and expand the perception of our treatment as we continue to raise awareness in the market.

We intend to feature the stories and images from some of these patients who received treatment under the Renewing Lives giveback program in our future marketing materials. In summary, our team worked diligently during the second quarter to navigate the challenging environment in our industry.

We engaged with prospective customers offering creative solutions to facilitate the adoption while educating the market on the unique benefits of our technology. Supported our expanded portfolio of clinical publications and evolving DTC initiatives.

Through these efforts, we were pleased to partly offset the headwinds in our industry by driving global growth in our handpiece sales, which exceeded 20% year-over-year in addition to 29% growth of our OEM products.

And we continue to manage our expenses, conserving capital as we execute our strategy to position Apyx Medical for strong growth and value creation as these near-term headwinds subside. Matt will now review our second quarter financial results in more detail, along with our financial guidance for 2024, which we updated in today's release..

Thank you, Charlie. Since Charlie already covered our revenue results, I will begin at the gross profit line. All references to second quarter financial results will be on a GAAP and a year-over-year basis, unless noted otherwise. Gross profit for the second quarter of 2024 decreased $1.8 million or 19% to $7.5 million.

Gross profit margin was 61.7% compared to 68.4% in the prior period.

The decrease in our gross margin was driven primarily by changes in the sales mix between our two segments with our OEM segment comprising a higher percentage of total sales and geographic mix within our Advanced Energy segment with international sales comprising a higher percentage of total sales compared to the prior period.

Operating expenses decreased $0.2 million or 1% to $13 million, reflecting our continued emphasis on controlling costs. The decrease in operating expenses was primarily driven by selling general and administrative expenses and salaries and related costs, which decreased $0.5 million and $0.2 million, respectively.

These decreases were partially offset by professional service expenses and research and development expense, which increased by $0.5 million and $0.1 million, respectively. Loss from operations increased $4.3 million or 349% to $5.5 million.

It is important to note that the loss from operations in the second quarter of 2023 included a $2.7 million gain related to the sale-leaseback transaction of our Clearwater property that was completed during the period.

Excluding that gain from our sales leaseback transaction in the second quarter of 2023, our loss from operations increased $1.6 million or 41%. Total other expense net was $1 million compared to income of $0.3 million in the second quarter of 2023.

The change was driven primarily by increased net interest expense related to our outstanding debt obligations in the second quarter of 2024 as we had lower borrowings in the prior year period.

In the second quarter of 2023, we also recorded the release of our joint and several payroll liability and a small insurance recovery that did not recur in 2024. Net loss attributable to stockholders was $6.6 million or $0.19 per share compared to $1 million or $0.03 per share in the prior year period.

Excluding the non-recurring gain related to the sale-leaseback transaction in the second quarter of 2023, non-GAAP net loss attributable to stockholders increased $2.9 million or 78% year-over-year. Adjusted EBITDA loss increased $2.7 million or 166% to $4.3 million compared to $1.6 million in the second quarter of 2023.

As a reminder, we provided a detailed reconciliation from net loss attributable to stockholders to non-GAAP adjusted EBITDA loss in our earnings press release. For the three months ended June 30, 2024, cash used from operating activities was $4.3 million compared to $4.9 million in the prior year period.

The reduction in cash use was driven by improvements in our working capital. As of June 30, 2024, the company had cash and cash equivalents of $32.7 million compared to $43.7 million as of December 31, 2023. Turning to a review of our 2024 financial guidance, which we updated in our earnings press release today.

For the 12 months ending December 31, 2024, we now expect total revenue in the range of $50.6 million to $52.1 million, representing a decrease of approximately 3% to flat. This compares to our prior range of $49.7 million to $52.9 million, representing a decrease of approximately 5% to growth of approximately 1%.

Our total revenue guidance range assumes Advanced Energy revenue of $41.6 million to $43.1 million, representing a decrease of approximately 4% to 1% and which compares to our prior range of $41.6 million to $44.6 million, representing a decrease of approximately 4% to a growth of approximately 3%.

And OEM revenue of approximately $9 million, representing a growth of 1%, which compares to our prior range of approximately $8.1 million to $8.3 million, down 10% to 7%.

In terms of our profitability guidance for fiscal year 2024, we now expect net loss attributable to stockholders of approximately $24.5 million to $23.5 million compared to our prior expectation of approximately $26.5 million to $24.3 million.

This updated net loss guidance reflects our revenue and loss results in the second quarter and revised expectations for the second half of 2024. Specifically, the low end of our formal financial guidance for net loss attributable to stockholders now assumes the following for modeling purposes.

First, gross margins of approximately 6% this year compared to our prior expectation of approximately 61%. Second, we now expect a total operating expenses of approximately $50 million, a decrease of approximately 7% year-over-year compared to our prior expectation of approximately $52 million or a decrease of approximately 3% year-over-year.

Third, we expect GAAP net interest expense of approximately $4.4 million versus our prior expectation of approximately $4.1 million.

And fourth, the low end of our net loss guidance range also assumes income tax expense of approximately $0.3 million compared to an income tax benefit of $2.4 million last year and a non-controlling interest benefit of approximately $0.2 million.

Lastly, at the low end of our net loss guidance, which calls for a loss of $24.5 million, we now expect cash used in operations in 2024 of approximately $21 million. This is compared to the prior guidance, which we assumed a $26.5 million and $19 million, respectively. With that, I will turn the call back to Charlie for closing remarks..

Thanks, Matt. Based on the trends observed in the first half of 2024, our updated Advanced Energy revenue guidance assumes the challenging capital equipment environment in our industry will continue through the balance of the year, impacting sales of our generator systems.

As I mentioned earlier, we were pleased to drive strong handpiece sales during the second quarter with sales growth that exceeded 20% year-over-year, both in the U.S. and internationally. We expect continued growth in handpiece sales over the second half of 2024, fueled by demand from both new and existing users of our technology.

Specifically, our updated guidance range now assumes low double-digit growth in global sales of our handpieces, which will help to significantly offset the impact of slower generator sales in 2024. With respect to our OEM segment, we are raising our 2024 revenue guidance to reflect our strong sales in the second quarter.

Our updated guidance range continues to assume nearly $4 million of OEM revenue in the second half of 2024 with more normalized customer ordering and order fulfillment.

When thinking about our revenue on a quarterly basis in the second half of 2024, remember that the fourth quarter tends to be the seasonally strongest quarter of the year in our Advanced Energy segment. The third quarter typically tends to be seasonally slower than the second and fourth quarters due to summer vacations during this period.

Looking ahead, our team remains focused on executing our growth strategy by continuing to raise awareness of Renuvion and educate surgeons and patients about the outcomes that can be achieved with our technology.

We have also conducted a strategic review of our business together with our new Chairman, evaluating ways to enhance our growth in order to further unlock value for our shareholders.

In tandem, we continue to closely manage our expenses and control costs across the organization in order to optimize our cash efficiency while remaining poised for a return to strong sustained growth.

As the near-term headwinds in our industry subside, we are well positioned to capitalize on multiple longer-term tailwinds, including the increasing social acceptance of aesthetic treatments, the rise of body contouring procedures and the adoption of GLP-1 drugs.

Whether its results from rapid weight loss or the effects of natural aging process, loose skin remains a key issue that patients will seek to address in order to improve their appearance. By coagulating and contracting soft tissue with cold atmospheric plasma, we believe Renuvion addresses the root cause of this issue safely, quickly and effectively.

And we are uniquely positioned to capitalize on this important clinical need going forward. We will continue establishing Renuvion as an integral component following liposuction and body contouring surgical procedures as we continue to penetrate the multibillion-dollar global market opportunity that these procedures represent.

I'd like to close by thanking my fellow colleagues and our distributor partners for their dedicated efforts in Q2 as well as our customers and shareholders for their support of Apyx Medical. With that, operator, let's now open the call for questions..

Thank you. [Operator Instructions] And our first question will come from Matt Hewitt with Craig-Hallum. Your line is open..

Good afternoon, thanks for taking the questions and congratulations on the handpiece sales. And I guess I'd like to start off there. So you're still seeing strong growth with your handpiece and obviously, some of that is just the users driving better adoption.

But I'm curious, as you look at the procedures, where this is primarily being utilized, can you attach a percentage of that to the GLP-1s? Or what do you think is the one or two primary drivers on the utilization side?.

Yes, thanks for the question, Matt. And as we said in our prepared remarks, those -- we were very happy with our sales performance of our handpieces and it was largely consistent with our expectations in our budget that we had for the year. And we had global growth of over the 20% that we saw. And we did see strong demand from our base.

And yes, some of it is because some of the GLP-1 patients are starting to come in and need treatments for their lose skin. There's no question about that. And so we're happy with that performance. And as we mentioned, we plan on having double-digit growth in handpieces for the entire year..

Well, that's great. And then maybe shifting gears a little bit. New geographies, is there any opportunity for you to add a new geography or two yet this year? Or has that kind of been put on the back burner given the environment? Thank you..

Yes, no worries. As we've mentioned before, the two markets that we're not in are the significant markets are South Korea and China, and we've got registrations into both of those countries. And so as soon as we obviously get news on that, that would be something we would let you know..

Got it. Great. Thank you..

Thank you..

[Operator Instructions] Your next question comes from Frank Takkinen with Lake Street Capital. Your line is open..

Thanks for taking my question. I'll also start with one on handpieces. I'm not sure if you parsed it out as potentially intentional. But maybe can you talk about U.S. versus international.

I think I saw both were strong, but was one stronger than the other? And does that give you any insight into maybe capital equipment sales coming back if either those geographies were stronger than the other?.

Yes. Look, both U.S. and international were both up more than 20% year-over-year for handpieces. So they both had very nice performances. When you're talking about the capital environment, we still see that it is challenged, and our guidance assumes that it will remain challenged throughout the rest of the year here in the U.S.

That's basically how we see -- how we have it in our guidance..

Okay. Fair enough. And then one more specifically on guidance, I heard the comments about seasonality in Q3, typically stepping down. With that context in mind, it does imply a pretty good step up to Q4 also in line with regular seasonality.

What's contemplated from a macro perspective in stepping back up into Q4 and what seems to be pretty solid year-over-year double-digit growth for Q4?.

Yes, you're correct. Our guidance does imply a stronger year-over-year growth in the second half of 2024 compared to the first half of 2024. As a reminder, we talked about that the challenging environment in the cosmetic surgery really began in the back half of 2023.

And with that in mind, our fiscal year 2024 guidance has always assumed a stronger year-over-year growth in the second half versus the first half..

Okay. Thanks for taking the questions..

Your next question comes from George Sellers with Stephens. Your line is open..

Hi, good afternoon and thanks for taking the questions.

Apologies if I've missed this in the prepared remarks, but I was just curious, within system sales, how much of that was from new customers? How many systems are you placing with new customers versus practices that already have experience with Renuvion that are maybe upgrading to Apyx One?.

Yes. Now that's a good question. We didn't break that actually out in the prepared remarks, so you didn't miss it at all. But I would say the vast majority of the quarter was new customers that are adopting the technology. We always have doctors that are expanding their practice and adding more things.

But typically, for us, the vast majority of sales of capital in any given quarter are to new customers..

Okay. Got it. That's helpful.

And then also on -- in a similar vein, just curious with the customers who have upgraded to Apyx One or the new customers who bought Apyx One, have you started seeing any acceleration in utilization with the micro handpiece or greater demand from a patient perspective with the micro handpiece? Is that a piece of what's driving the strong growth in handpieces?.

So the micro definitely is all of new micro sales or growth because there's no comparison for those in the past. So there's no question that, that is a part of it. But remember, the micro is just there for small areas of the body, the face, the hands, the knees, the labia areas like that.

The big driver of the growth for the handpieces is still on the body contouring handpieces. That's still the biggest driver that we see. But obviously, it's incremental growth anytime somebody picks up the micro handpiece..

Okay. Great. Thanks for that color. I’ll leave it there..

Thank you..

We are currently showing no remitting questions at this time. That does conclude our conference for today. Thank you for your participation, and have a wonderful rest of your day..